It is possible to reduce the effects of inflation in Latin America

This phenomenon generated important transformations in the people. On the world stage, Mexico has a plus because it is an oil producer.

It is possible to reduce the effects of inflation in Latin America
Image and text: UNAM

Latin America and the rest of the world are facing a phenomenon of imported inflation since it was generated by external factors, but countries with good macroeconomic fundamentals can better overcome the problem, agreed to specialists in a talk organized by UNAM's Center for Research on Latin America and the Caribbean (CIALC).

CIALC Director Rubén Ruiz Guerra commented that inflation is a pressing issue that is becoming increasingly important for society and is taking its toll -in social and political terms- on governments, political organizations, and the development prospects of Latin American societies.

"The new generations do not know or have not experienced inflation as a pressing problem that transforms everything. But there are several generations of Latin Americans who in our youth lived through truly terrifying inflationary processes, which generated a series of very important transformations in the people", explained Ruiz Guerra during the conference "Inflation in Latin America, some elements for its analysis".

In turn, Emilio Zevallos Vallejos, an academic from the Latin American University of Science and Technology (ULACIT-Costa Rica), analyzed how Latin American countries have dealt with rising prices and business speculation that affects them, especially the poorest.

"It depends on how nations manage their expectations so as not to generate an escalation of prices and exchange rate, but both will certainly rise this year because there is an evident pressure, and what must be done is that it is only the necessary, to buy goods from abroad and avoid increasing it with the expectation that things will continue on a collision course", commented the economist.

Cost inflation in goods and services as of February 2022 stems from the expectation that the COVID-19 pandemic would end with vaccination, in addition to the beginning of the war between Russia and Ukraine, Zevallos Vallejos pointed out.

Nations have relaxed prevention measures, betting on herd protection, but there are new waves of the disease that generate other sanitary actions. In addition, the invasion of Ukraine caused an escalation in energy prices, since Russia supplies 40 percent of Europe's natural gas, while Ukraine was the main exporter of wheat, barley, corn, and sunflower oil, which is why these products are scarcer.

In Latin America, the trend is upward in prices. In Brazil, El Salvador, Chile, and several nations of the world, the costs of raw materials have risen by more than 60 percent, food 35 percent, energy 150 percent, beverages 50 percent, industrial goods 28 percent, and agricultural industries 28 percent.

According to Zevallos Vallejos, in the world scenario, Mexico has a plus because it is an oil producer, so the price increase is not such a big problem. On the contrary, it is a problem for Central America, which imports it and pays an increasingly higher price in dollars, affecting its budgetary capacity and expectations of increases or exchange rates.

The Mexican nation "is on the rise" because the international price is increasingly higher and, in general, it is a country that has a rich and varied production. "Its strategic alliance through the T-MEC and the trade it has with Latin America and Europe allow it an important solidity." I do not see a significant danger in its economy due to its good economic fundamentals and because it produces what is needed today, "it has something to hold on to", considered the specialist.

Based on the behavior experienced in the first four months of 2022 by nations such as Brazil, Chile, Costa Rica, El Salvador, Peru, and Mexico, Zevallos Vallejos estimated that at the end of the year the highest inflation will not exceed 15 percent, which will manifest itself in moderate price increases; it will depend on what governments do to reduce this estimate to single digits.

For the expert, the next step is to reduce expectations, and uncertainties and generate sufficient confidence; external aspects cannot be controlled, but internally it is possible to minimize their effects.

Although it seems ironic, the international consultant explained, "the rise in prices is an indicator of economic health. When it is small, it reflects the relative scarcity of each good, the demand of the people, and that it is worthwhile to continue producing it; but if they rise in an unbridled and exorbitant manner, it is a speculative phenomenon".

The economist emphasized that the options available to nations, especially in Latin America, are to see the problem from the perspective that it is a great opportunity to change the productive matrix. Currently, he explained, we depend to a great extent on oil for transportation and electricity, so it is possible to promote the use of new energies and fewer chemical inputs in agriculture.